Is There a Social Media Bubble – and What If It Bursts for Brands?

by Gregg on April 14, 2012

As I’ve mentioned many times on this blog, the great thing about social media is that one can have a cogent conversation with others located all over the world at any given time. Case in point from this past week: I had a good discussion about social media platforms with Julia Zunich, from Idaho, and George Zeidan, from Melbourne, Australia. (You can check out George’s website here and Julia’s here.)

The conversation eventually drifted to the possibility of a social media bubble, i.e., does it exist, and if so, what could happen?

"Well, my bubble has burst. There are teenagers w/ insatiable appetites, but the rest of us have work to do [sic]," Julia posted, suggesting something I’ve sensed for awhile – a weariness with having to become an expert in short order on the latest, hottest social media platform, only to have to repeat the process every six months or so. (Want proof? Think Google+ last summer, and then Pinterest this spring.)

"It will burst with the next generation social media platform something better than google goggles [sic]," George added.

Rebecca Greenfield brought some perspective to this question in her well-written article in The Atlantic Wire this past week. She leads with Facebook’s $1 billion buy of Instagram, "a photo sharing app that costs zero dollars to use and has no source of revenue." That feels like a bubble, she says, but then makes an even better point at the end of the article that all the discussion about it – including this post – may mean there isn’t a bubble at all. In other words, the cautionary talk is going to help avoid one.

She quotes Netscape founder Marc Andreessen, who said, "A key characteristic of a bubble is that no thinks it’s a bubble. If everybody’s upset, it’s a good sign." I highly recommend you read Rebecca’s story, along with this piece from CNBC about the Facebook-Instagram deal.

The key thing to remember when it comes to a bubble in any industry is that it has to be viewed from the finance and investment angle first and foremost. The New York Times provided a great primer last summer on what a bubble is, and places LinkedIn’s IPO through that lens. According to writer James B. Stewart, "bubbles occur when a speculative mania causes the price of an asset to soar far above its intrinsic worth. After the mania runs its course, and investors finally recognize the divergence, the bubble typically bursts, causing prices to plunge." Again, required reading on the subject.

Let me couch the final portion of this post by saying I am not a finance or investment guy, but I do have thoughts on what the implications might be for brands if the bubble eventually bursts. Why? I woke up at 5:30 a.m. this morning, and as I lay in bed, I tried putting the pieces together in my mind.

First, and perhaps most obvious, there won’t be as much venture capital available for development and launch of new platforms, which will, at least in the short term, force brands to better leverage the platforms they are currently using. It will also force those brands to rely more heavily on social media monitoring software to better ascertain exactly where their audiences are residing and engaging, in order to dedicate limited resources to those channels. But it could also drive those resources to the growing mobile space.

Second, the key for any social media platform is the ability to monetize, primarily through advertising but also, as James B. Stewart notes in the case of LinkedIn, through premium subscription models. I have to think if the bubble bursts, that will make it harder for some platforms to monetize (particularly Twitter, which hasn’t had an IPO – yet). And when it’s harder to monetize, the economics may not make sense.

That means the result could be consolidation, which we’re already starting to see with Facebook-Instagram, and could create an opportunity for brands to engage with new audiences across several consolidated platforms. The other result, of course, is attrition, which is bad for brands that are actively engaging with audiences on platforms that go dark.

Social media has weaved its way into the very fabric of consumers and the brands they support, which is why the discipline will continue whether the bubble bursts or not. But the short-term implications could be substantial for brands, which is why I recommend vigilance going forward through metrics to be prepared if, and only if, that happens.